Pethokoukis, Economics, U.S. Economy

Sunset in America: Is David Stockman too pessimistic about the future of the US?

Credit: Barry Yanowitz (CC BY-NC 2.0)

Credit: Barry Yanowitz (CC BY-NC 2.0)

If David Stockman’s op-ed in The New York Times is an accurate summation of his new book, The Great Deformation: The Corruption of Capitalism in America, then it is likely most useful as a warning of What May Be rather than What Must Be or What Is. Certainly a future where government grows ever bigger and more intrusive would not bode well for either personal freedom or increased prosperity. Bank bailouts, Obamacare, rising debt, and unreformed Medicare are certainly worrisome harbingers. Stockman:

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

I don’t know. Stockman offers an essentially Austrian (and anti-monetarist/Milton Friedman) critique of US economic history. While that school of economic thought has much to offer on political economy — and Stockman has much wisdom here about Wall Street and entitlements — less so when it comes to monetary policy and business cycles.

Despite eight decades of bad policy, as Stockman sees it, average Americans are ten times richer than they were back then, and the American economy remains the most innovative on the planet. And while the US should reform its entitlement system, we are not on the precipice of a debt crisis.

For me, the most helpful policy lens to judge America’s future economic prospects is that created by economist Deirdre McCloskey, what she calls the “Bourgeois Deal”: “You let me engage in innovation and creative destruction, and I will make you rich.” As long as that bargain remains intact, as it has for more two centuries, then America’s prospects are far from bleak.

And Stockman does provide some reason to be concerned. But he also seems to be saying the sun has been setting on America from the very moment it emerged as a global economic superpower. That misses quite a bit over the past century and ignores many encouraging signs for the future. But I look forward to reading his full argument.

19 thoughts on “Sunset in America: Is David Stockman too pessimistic about the future of the US?

  1. If I could borrow and spend with abandon, I would be “ten times richer than I was back then” also. Of course if somebody forced me to start paying back that debt, my lifestyle would crumble.

  2. Jim, I think that, at some pooint in time, you have to stop throwing bricks at the Austrians and put down clearly what theoretical explanation of business cycles you think superior and why. When Hayek, von Mises, and Rothbard are framed by John Hicks [Fundamental Theorem of Capital]. the explanation which emerges presents a very accurate picture of just what is happening.

    • I agree completely. It is EXACTLY about monetary policy and business cycles where the Austrians are right.

      I think that Keynesians should be required to announce in their opening sentence whose theories they believe. That way the reader can stop wasting time reading the rest of the poorly constructed comments.

      • I don’t know that Jim’s a Keynsian. Maybe he’s a monetarist. Whatever, it is not sufficient simply to throw bricks at a theory. What is needed is to put forward a better theory.

        • When the chips are down Monetarists are not all that different than the Keynesians. Both favour central planning to the markets.

      • Mr. P is Chicago School; it’s all about the money supply, although lately it’s more about (lack of ) velocity. Even Uncle Miltie acknowledged late in his career that economists should be asking how fast in addition to how much. The Austrian School would seem to account for this by looking at tihe flow of bank credit into capital goods, but its adherents here also ignore the fact that banks haven’t done squat with those crisp new bills.
        Stockman raises an excellent question. How is that, after a disastrous bout of too much money chasing too few opportunities, the answer is to print more money? In the real world, it’s always comes down to compared to what? And the only thing worse than having the Fed as mortgage investor of last resort is not having the Fed as mortgage investor of last resort.

  3. Maybe because due to the MSM and polling results we have forgotten that we are a REPUBLIC and not a DEMOCRACY – 38 State legislatures control our government and not the majority populations of the large States and mega cities . . read here and you will now how and why the Founders designed it that way . .

  4. If we don’t reign in our culture of unrestraint, we will crash. Bernstein usese the words frenetic fiscal policy, which reminds me of the new book Return to Order: From a Frenzied Economy to An Organic Christian Society by John Horvat II.

    After 20 years of research, Horvat coins the terms “frenetic intemeperance” to describe the deeper moral cause of our economic meltdown.

    What’s Really Wrong With Our Economy?

    • There’s a lot of similarity to the “irrational exuberance” of the late 90s stock market and the 00s real estate market. When you disconnect outlay decisions from real return considerations, you should expect disaster to strike eventually. Our government — and to a lesser extent households — have been spending because, well, we “want stuff”, not because that “stuff” has much productive economic value. If you’re spending money on things that will help you produce more — e.g. new tools or a college education — that’s one thing. If you’re spending it on vacations in Florida, that’s another. Our government is spending more and more of our money on the economic equivalent of those vacations.

    • But Ed, haven’t we learned there is no point to restraining anything about our economy? Maybe somebody would have restrained Steve Jobs or Mark Cuban because they weren’t proceeding in an orderly way. The point here is, let’s let the private economy operate within the bounds of the US Constitution and the government be restrained by Article I, § 8. If you crash and burn, the government isn’t going to prop you up.

      • The problem of unrestraint goes deeper. It’s a tricky question, because it is in souls. Souls cannot be coerced, like in a prison. But when the carillon souls in society, the natural leaders, hold up money over honor as desirable, the constitution is ineffective to hold back the unrestraint.

        The solution is for people to return to a mindset that puts honor over money, as Horvat mentions in his book Return to Order.

  5. Umm. Feldstein’s points are (1) a negative real interest rate is not likely to persist, and (2) when rates climb bond prices will get fall. Seems reasonable to me. Sumner’s point about about a 30-year slide in rates would be valid if the period didn’t start in the middle of Volcker’s very effective campaign against inflation expectations. From artificially high to normal to artificially low isn’t overly comforting in my view.

  6. Jimmy P, where are you coming from? You say: “For me, the most helpful policy lens to judge America’s future economic prospects is that created by economist Deirdre McCloskey, what she calls the “Bourgeois Deal”: “You let me engage in innovation and creative destruction, and I will make you rich.” As long as that bargain remains intact, as it has for more two centuries, then America’s prospects are far from bleak.”

    I’m sorry, the bargain no longer remains in tact. The barriers to starting even the most simple businesses prevent many from entering the market place and it isn’t getting any better. Payroll withholding, unemployment insurance, Title VII and its state counterparts, immigration I9s and checking out folks to be sure they can work legally, and, looming, Obamacare. That’s before you make a dime. If you make money, the tax code will not let you become rich unless you beat the odds and are successful for many years so you can accumulate something.

    So, the deck is stacked against you. The government certainly lets you destruct, creatively or boringly. Allowing you to succeed, I don’t think so. There’s no such “deal” like that anymore.

    Stockman’s right again. All this bailout and stimulus money and it isn’t going to Main Street in the form of loans, it’s going into the stock market. Is there any evidence that isn’t so? If that’s happening, Stockman is again correct that we’re just inflating a bubble and, this time, the big boys will be more nibble in bailing out leaving the individual investors holding the bag of losses.

    I wish you were right on this point, but I don’t see it and it’s getting even worse.

  7. The whole point of Obama’s economic policies is “fundamental change” or the destruction of our country. He and his band of progressive fascists want to build a progressive fascist socialist state. They can’t do that unless the most successful country ever us destroyed.

  8. I agree, although what they want as a follow up to the destruction of America is not so much a fascist state but the complete destruction of the state.

    See, these people hate the state, even though now they are building it up to great sizes.

    Once this top heavy, bloated, hyper trophied state collapses, which it will, the socialists and the radical libertarians will advocate the neo tribal lifestyle as the solution.

    Others, like scholat John Horvat II, advocate a return to an organic Christian order, as the solution. The 10 Traits of such a society are:

    • If the comments are better than the original article there’s hope that in our time of great need, we look beyond the impending collapse and outline the timeless principles of an Organic Christian order that addresses certain yearnings that modern man senses in the depths of his soul.

      Such a depiction cannot fail to suggest the figure of the Prodigal Son who, having left his father’s house for the “frenetic intemperance” of a dissolute life, realizes the gravity of his error and longs to return. In looking for our solution, we believe we must follow a similar path.

      Perhaps we could call this the Prodigal Son moment for America. It’s the first step in our return to order, in our return to our Father’s House.

      • I agree with you that we need a return to Judeo/Christian principles on which our Constitution is based. Life would be far less acrimonious if we would just follow a decent set of rules of order. But that would interfere with certain agendas, which at this time ‘can not’ be tolerated. Alas!!

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